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A Farmland Investment Primer

beebee
edited July 2014 in Fund Discussions
From Julie Koeninger of GMO (the investment firm):

"Farmland investments consist of direct investments in rural land along with crop and livestock assets that produce food, fiber, and energy. Farmland investments focus on the productive capacity of the land base, and returns are based on the biological growth of crops and livestock, as well as appreciation of land and related assets. By their nature, farmland investments are long-term illiquid investments in real assets."

image

and,
"Investment Vehicles

Investors can participate in the farmland asset class through direct investments or through the use of a specialist farmland investment manager, that may offer funds, co-investments, or separately managed accounts. For most investors, developing a well-diversified portfolio of direct investments is prohibitively complex and time-consuming. Investing in farmland through a farmland investment manager can provide the benefits of diversification, experience, and scale. Closed-end funds have a fixed term with some potential for extension, but are generally illiquid for the term. As with private equity, fund terms can vary widely. Open-ended funds and publicly-traded REITs provide more liquidity, but valuation at entry and exit can be an issue in open-ended funds, and the performance of public REITs can be influenced by capital market trends and other factors apart from the underlying farmland investment. Co- investments and managed accounts often require a larger minimum investment, but offer investors a greater measure of control."

Full Primer:
advisorperspectives.com/commentaries/gmo_072114.php?WT.rss_f=CommentaRSS&WT.rss_ev=a&WT.rss_a=A_Farmland_Investment_Primer

Related Article from Barron's:
blogs.barrons.com/penta/2012/06/15/investing-in-timber-and-farmland/tab/print/

Comments

  • scott
    edited July 2014
    I think the issue really becomes in terms of the average investor, one: the concern over overvaluation. Two, the idea that when you invest in something like Gladstone Land (LAND), the idea being that you are investing in the land itself and not participating in potential commodity production gains.

    What remains interesting to me is ag/commodity infrastructure - how are commodities stored, how are they shipped? I like the few available plays on grain infrastructure - Andersons (ANDE), ADM (ADM) and Graincorp (GRCLF.PK) being the most prominent and ADM being the most consistent (additionally, ADM owns about 20% of Graincorp, despite being denied when they tried to take it over.)

    You also have the rails, which continue to do very well. In terms of farmers and rail, look at Canada, whose rails are so busy that the country had to threaten to fine the rails in order to move grain backlog. Until it gets moved, it's sitting at a facility somewhere. Ag Growth International (AGGZF) is a company that makes handling and storage equipment/facilities.

    CHS (which is a gigantic co-op) pfd shares (there are three different versions, no common shares) provided a pfd stock option for ag income.

    I don't think there's a really great "pure play" investment on farmland for the average investor, but there some options here-and-there, as well as alternatives in the ag universe.
  • timgr
    FPI is another farmland REIT - FPI - http://seekingalpha.com/article/2291113-farmland-is-the-next-big-thing-in-reits - article also mentions LAND.
  • scott
    edited July 2014
    timgr said:

    FPI is another farmland REIT - FPI - http://seekingalpha.com/article/2291113-farmland-is-the-next-big-thing-in-reits - article also mentions LAND.

    You know, I want to like these companies, but I find issues with FPI, such as a significant concentration in the Midwest and specifically one state (33 out of 38 farms in Illinois.) The comments section under the SA article also throws out a number of other concerns. I like LAND a little better (which has farms in Arizona, California, Florida, Michigan and Oregon totaling 5,990 acres) but currently dont own either.

    Article related to both:
    http://dealbook.nytimes.com/2014/07/21/cash-crops-with-dividends-financiers-transforming-strawberries-into-securities/?_php=true&_type=blogs&_r=0

    Additionally, article mentions Whitebox owning ag investments in 2008 - a lot of those assets wound up going public as Ceres Global Ag, which is a traded entity in Canada (CERGF.PK in the US.)
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